Does GE’s move to Mass. signal a Connecticut exodus?

The entrance to GE’s headquarters in Fairfield, Connecticut (Courtesy – Town of Fairfield)

The morning after he spent the evening as President Barack Obama’s hand-picked guest at Tuesday’s State of the Union address, Connecticut’s Democratic Gov. Dannel P. Malloy awoke to headlines announcing General Electric’s decision to relocate the company from suburban Fairfield, Connecticut to Boston’s Seaport district.

“We want to be at the center of an ecosystem that shares our aspirations,” CEO Jeff Immelt said in a prepared statement.

But although the company’s statement touted both Boston’s status as a mecca of higher education and the state’s commitment to research and development as the chief reasons for the move, Connecticut Republicans and some business analysts accused Malloy and the Democratic controlled legislature of creating an unfriendly economic climate that precipitated the move.

Senate Minority Leader Len Fasano was blunt in his accusations.

“[GE is leaving] because of the unpredictable nature of our budgeting, the amount of deficits we have year-in and year-out and we don’t have control,” Fasano told Northeast Public Radio. Fasano blamed the Democrats for not taking GE’s tax concerns seriously. “I know this because I met with the CEOs at GE and they told me that,” Fasano said.

Is Fasano right? GE won’t say, but a 2016 Tax Foundation survey of positive business tax climates among U.S. states, Connecticut ranked near the bottom, in 44th place. Massachusetts, by contrast, ranked 25th. Last year, the Connecticut legislature voted to raise the state’s already high corporate taxes, a move that prompted both insurance giant Aetna and GE to threaten to leave.

The $40.3 billion budget, which Malloy approved in June, included a $1.5 billion net jump in corporate taxes and fees. For the first time in its history, Connecticut now taxes corporations on their worldwide earnings, rather than simply on what they earn in-state and also imposes a 20 percent surtax on companies — meaning that their overall tax payment is now also subject to a 20 percent tax itself.

Leaving, so soon?

According to the Yankee Institute, a Hartford-based think tank that advocates free-market principles, it’s not just corporations, but residents who are leaving Connecticut in droves on account of the burdensome tax structure.

In 2008, the Connecticut Department of Revenue released a survey in which 166 estate tax planners, attorneys and tax accounts kept track of their clients’ reasons for leaving the state. The survey revealed that 53 percent of all clients cited Connecticut’s estate tax as the biggest reason for leaving.

The budget that passed in June only exacerbated the problem by killing the state’s $12,500 cap on probate court fees and adding a new 0.5 percent fee on estate assets valued at more than $4.754 million.

“Connecticut is most expensive place to die in the U.S.,” screamed an Associated Press headline in July, weeks after Malloy signed off on the budget.

In addition to increasing estate taxes and corporate taxes, Connecticut’s June budget also increased taxes on personal income.

Between 2011 and 2013, the Yankee Institute reports that more than 27,000 residents along with $3.8 billion in income left Connecticut. Of those who remain, many wish they could leave. According to a Gallup poll released in April 2014, 49 percent of Connecticut residents would prefer to live in another state — the second highest percentage in the nation. The only state with more residents wanting to leave was Illinois, where 50 percent reported wanting to move.

Gambling they’ll stay

The so-called “death tax,” of course, affects the wealthiest residents the most. But Connecticut is gambling that it won’t affect them enough to provoke them to move across state lines. If that happens, Connecticut could be in for a lot more trouble.

“There are probably a handful of people, five to seven people, who if they just picked up and went, you would see that in the revenue stream,” Kevin Sullivan, Connecticut’s commissioner of the Department of Revenue Services, told the Associated Press last February.

A Hartford Courant study determined that in 2012, more than a quarter of $7.8 billion state residents forked over in income tax came from those living in Fairfield County. Residents from Greenwich, paid the most at an average of $31,597 per taxpayer.

Will more corporations follow GE’s lead?

Even before the June budget vote, Aetna, which is based in Hartford and a member of the exclusive Fortune 100 club, was doing some well-publicized sabre-rattling.

“Connecticut is in danger of damaging its economic future by failing to address its budget obligation in a responsible way,” a statement released by the company read. “Such action will result in Aetna looking to reconsider the viability of continuing major operations in the state.”

Travelers, another major Hartford insurance company, released a similar statement, noting that raising taxes “will increase the cost of living for nearly every resident and small business in the state, negatively impacting our employees and customers.”

In GE’s case, the decision to relocate to Boston was influenced, in part, by the guarantee of $120 million in grants and incentives, prompting Connecticut Democrats to claim on Thursday that the move was not related to Connecticut’s tax policy.

“I don’t doubt that GE was sincerely concerned about corporate taxes when they made their comments about the budget this summer,” Senate President Martin Looney, a New Haven Democrat, told the Hartford Courant. “However, by moving to a state with essentially the same tax structure that Connecticut has — and, not coincidentally, the same extremely high level of quality of life — it’s clear that taxes were not the reason for the relocation of their headquarters.”

House Speaker Brendan Sharkey, a Democrat from the New Haven suburb of Hamden, echoed Looney’s points.

“What’s been going on in Hartford was really not in play,” Sharkey said.

What is still in play is whether more residents and corporations will follow GE’s lead.